Biweekly payments aren't the only way to speed up repayment of mortgage

Posted: Thursday, May 17, 2001

By EILEEN ALT POWELLAP Business Writer

NEW YORK (AP) -- A number of banks and mortgage finance companies are offering customers the option of switching from monthly to biweekly payments on their home loans, which speeds up repayment and greatly reduces the interest cost.

Most charge an upfront fee of $300 to $400 for the privilege, and some tack on an additional monthly fee.

But consumers can use other repayment schedules -- with no fees attached -- to accomplish the same goal.

''Instead of paying the money to have a biweekly mortgage payment schedule set up, all you have to do is manipulate your monthly payment,'' said Greg McBride, a financial analyst at Bankrate.com in North Palm Beach, Fla.

A biweekly payment works to a consumer's advantage because the principal on the loan is paid down faster, which reduces the interest to be paid over the life of the loan. You can accomplish the same thing by increasing each of your monthly payments by 1/12th or by making an extra loan payment each year, McBride says.

The Chase Manhattan Mortgage Corp., a subsidiary of J.P. Morgan Chase of New York, is offering an ''equity accelerator'' biweekly payment option -- for a one-time fee of $299 or a monthly fee of $9.95, plus a $3 monthly service charge.

''People can set up their payment schedules to correlate with when they get paid,'' said spokeswoman Charlotte Gilbert-Biro. She added that because the mortgage payments are deducted electronically from a customer's checking account, ''it helps people maintain the financial discipline to stay with the program.''

At the Bank of America in Charlotte, N.C., there's no fee if you sign up from the start for biweekly payments, but there is a charge if you convert from a monthly to a biweekly schedule, said spokeswoman Julie Davis.

''There are some fees, based on which structured program a customer chooses,'' Davis said. ''But customers always have the option of making additional payments not through a structured program, and there's no fee for that.''

Bud Carter, senior director for residential finance at the Mortgage Bankers Association in Washington, said lenders were charging fees for accelerated payment programs to cover the cost of processing additional payments. Still, he urged consumers who can afford to speed up payments to consider doing so.

''Anytime you can save yourself $10,000 or $20,000 in interest payments by making extra payments, it's probably worth it,'' he said.

The savings can really add up. Take the example of a $100,000 mortgage at 7 percent interest, as calculated by Bankrate.com:

If you made the normal monthly payments of $665.30, it would take 30 years to pay off the loan and cost you $139,508 just in interest.

On a biweekly schedule, your payment would be halved to $332.65 every two weeks, but you would make 26 payments a year -- the equivalent of 13 monthly payments. That $100,000 mortgage would be paid off in a little less than 24 years at an interest expense of $105,048, a savings of more than $34,000.

You could accomplish the same thing by increasing your monthly payment by 1/12th, or 8.3 percent. With this schedule, you would pay $720.74 a month, with the interest adding up to $105,368.

If you opted for an extra payment each year, you would make 13 payments of $665.30. Your total interest would be $106,661.